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For both sellers and consumers, calculating mortgage payments is essential to the entire lending process. Banks or mortgage companies use several factors when determining how much money they're willing to lend a borrower and how exactly that money will be amortized back to them. Consumers should have a clear understanding of these factors in order to make the best possible decisions throughout the home buying process.

Income

In many cases, the most influential factor when determining the parameters of a mortgage will be the borrower's income. Generally speaking, large amounts of income will generate the ability to borrower large amounts of money. However, the source of the income also is considered. Self-employed borrowers are generally associated with higher risk for lenders and deeper income history may be required as a result. For borrowers who are not self-employed, proof of employment and income history for the previous two years normally is required. If overtime and bonuses are to be factored in, proof that they will continue for a certain amount of time also will be necessary.

Sales Price and Down Payment

The sales price will help lenders determine the total loan amount needed to purchase the property and the loan to value ratio, or LTV. According to HUD's glossary, the LTV is defined as "a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment." In most cases, borrowers also will have the option to pay a higher down payment in order to lower their monthly payments. This is measured by a percentage point basis, with each point being one percent of the total loan amount.

Debt

Banks and mortgage lenders also consider an applicant's existing debt when determining what kind of loan to issue. The debt to income ratio, or DTI, is used as an indicator of how much the applicant currently owes compared to how much income they produce. Certain loan programs will have specific DTI limits. Underwriters may require letters of explanation and proof of established payment plans in order to reduce risk associated with borrowers' high debt amounts.

Credit History

Credit history and credit scores are important factors for lenders when assessing risk. Credit reports usually paint a clear picture of how a person accumulates and manages their debt. Lenders will be less likely to issue loans to applicant who have a history of not paying their debts. However, there are loan programs specifically designed for borrowers who may have very low credit scores and poor credit history.